Wide Adoption of Electronic Signatures and Electronic Contracts Overdue

by Matt Storms and Macy Shubak

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While almost a decade has passed since the federal Electronic Signatures in Global and National Commerce Act (ESIGN Act) became law, most companies have yet to take advantage of the opportunities that the act affords. Other than online click-wrap license agreements and Internet sales terms and conditions, most companies are still entering into most of their agreements on paper.  Having moved beyond faxing in most cases, the norm these days for most businesses is to print, sign, scan, and email the contract. In large or important agreements, companies typically also exchange multiple sets of originals, so that each side (and their legal counsel) have original copies. In most situations, this elaborate process is unnecessary.  For a variety of reasons, we often encourage clients to go paperless with their contracts when appropriate. 

Software and Internet Services that Assist with Electronic Contracts

There is some encouraging news that going paperless in the contracting process may become more prevalent.  Adobe recently released a free beta version of its online eSignatures software-as-a-service (SaaS).  The SaaS offering is easy to use and may spur more adoption of e-signature technology.  Low cost competitive products from DocuSign, Arx, and AlphaTrust are also worthy of consideration.  These and other e-signature vendor products offer the following benefits:

  • E-signatures speed up the contracting process.   The extra steps of printing for signature, scanning, preparing a cover letter/fax, and mailing/faxing are removed. 
  • E-signature service can be accessed virtually anywhere.  All that the parties need is a computer with an Internet connection.  No need for the traveling executive to find a printer and scanner/fax or have the hotel staff print the document, prepare a coversheet and fax the signed document back. 
  • Electronic contracting saves paper.  There is no need to print the agreement, so it supports the virtually paperless office, such as ours.

In addition, traditional concerns over security have mostly been allayed.  The e-signature vendors typically offer one or more security measures to authenticate the sender and verify that the document has not changed since it was signed.  Many e-signature vendor offerings are SAS 70 Type II compliant and upload and download over an SSL encrypted channel.  Audit trails show when and by whom documents were sent, viewed, and signed.  After signing and downloading, with most of the products, the party sending the contract typically has the ability to delete the electronic contract from the cloud.

Laws Related to Electronic Contracts

Numerous laws in the United States and abroad recognize the legitimacy of electronic signatures.  The federal ESIGN Act and Uniform Electronic Transactions Act (UETA) serve to establish generally the legal equivalence of electronic records and signatures with paper writings and manually-signed signatures, removing barriers to electronic commerce.  Forty-seven states have adopted the UETA, a model law for states to enact to cover contracts governed by state law; the remaining states, New York, Illinois, and Washington, have each adopted their own statutes governing electronic transactions.  Under the UETA, an electronic signature is attributable to a person if it was the act of the person, which can be shown by the effectiveness of the security procedures for signature authentication and the context and surrounding circumstances at the time of the document’s creation.  No one can be required to use a digital signature or to accept a digital signature.  Besides the United States, the European Union has adopted the Electronic Signature Directive (1999/93/EC) and numerous countries have adopted electronic signature laws.   

How Electronic Signatures Work

These are the basic steps to send a document for signature using an electronic signature solution.  The initiator sets up a password-protected account, uploads a document, types the email addresses of the recipients, composes a short cover note (if desired), clicks to sign (or chooses to sign last), and sends.  Recipients receive an email with the customized message and a link to a document to sign.  Recipients are not required to pay to use the electronic signature service, but they may need to set up an account.  After completing any required authentication checks, they click on the link, review the document, and click to sign and send.  After the document is fully signed, all parties receive an email with a link to the document with digital signature stamps from each signing party.  In the case of Adobe’s eSignatures SaaS offering, Adobe will apply a certifying signature, appearing as a blue ribbon, indicating that the document has not changed since it was signed. 

Additional E-Signature-Based Offerings that Facilitate the Electronic Contracting Process

E-signature vendors with low-cost software or services offer many of the following additional features (some of which Adobe may incorporate into later versions):

  • Signatures in multiple places and on specific lines (whereas Adobe’s eSignatures SaaS offering just appends a signature page to the end with all the electronic signatures)
  • Fill-in-the-blank forms and agreements, guiding receiving parties through the document with signature flags, initial flags, and instructions, and preventing a party from signing a document with an incomplete blank
  • Ability to compare the signed document to the encrypted hash captured at document signing to confirm that the signature is valid and the document has not been modified (whereas Adobe’s blue ribbon indication is immediate)
  • Signing parties other than the sender do not need to subscribe to the service (free)
  • Folders to deliver multiple documents in logical groups
  • Workflow processes for internal approvals
  • Access via mobile devices
  • Optional multi-layered authentication, such as passwords, ID checks administered by third parties with questions from public and private databases, security fobs, etc.
  • Integration with business enterprise software 
  • Server-based as well as hosted solutions
  • Custom branding and instructions 
  • Optional behind-the-scenes digital signature cryptology

Using Digital Signatures for Additional Security

A subset of electronic signatures, digital signatures provide more checks to ensure security, but more time and cost can be involved in administering them.  Digital signature technology can also be used to control who has access to a document or who can sign or certify it.  Digital signature technology is the gold standard of security in terms of validating the authenticity of the signature and preserving the integrity of the document.  This is due to the secure method of locking and unlocking the signatures on the document.  A digital signature, also known as a digital ID, requires a private key of the signer and a public key for the receiving party to validate the signature.  Many large organizations implement a public key infrastructure to issue, authenticate, and revoke digital IDs used for digitally signing documents.  Most receiving parties require that a certificate authority, such as VeriSign or GlobalSign, validate the authenticity of the public key.  There are fees in the hundreds to thousands associated with using a Certificate Authority.  David Youd explains digital signature cryptology in simple terms and pictures (http://www.youdzone.com/signature.html).   While it is not difficult to establish a digital ID or validate another party’s digital IDs, some education and administration is involved. 

When to Use Handwritten Signatures vs. Electronic Signatures on Contracts

Although electronic signatures are in most cases recognized as being equally valid as handwritten signatures, there are occasions when handwritten signatures may be more appropriate.  When doing a substantial deal with a party in a more formalistic country, such as Japan, China, Spain, and Italy, a personal signing ceremony can be a culturally sensitive choice.  Parties might also prefer to sign in person or exchange wet ink signatures when stakes are high or emotions run deep, as with the sale of a business.  In addition, under law, there are certain types of agreements that cannot validly be signed electronically.  For example, in many places, wills, testamentary trusts, family law documents, and U.C.C. documents must be signed by hand.  If in doubt as to whether a contract may validly be signed electronically, check with your attorney first.  Also, government regulators in some highly regulated industries such as pharmaceutical and financial services regard the use of digital signature technology favorably for regulatory and legal compliance. 

Just as signing and emailing documents became prevalent with widespread adoption of PDF files and improvements in scanners, so, too, are electronic signatures likely to become more mainstream as people discover the increasing efficiency and security of e-signature technology.

by Matt Storms and Macy Shubak |

 
 

2 Responses to “Wide Adoption of Electronic Signatures and Electronic Contracts Overdue”

  1. Ashley Miller Says:

    In case anyone is interested in learning about how companies use and benefit from digital signatures, my company, ARX (mentioned above) published a short eBook on SlideShare called “Think Twice Before You Sign Anything Again” that includes 12 accounts of real-life companies who have implemented digital signatures. It also provides tips to keep in mind when looking for the most appropriate digital signature solution for your company.

    The eBook can be found at http://www.slideshare.net/digitalsignature/digital-signature-ebook-think-twice-before-you-sign-anything-again

    Thanks!

  2. Dan Manak Says:

    Matt and Macy,
    Thank you for this post, it is very informative and you bring up many relevant points. I used to manage an SMO (Site Management Organization) and processed about a hundred site start-ups per year. Study start-up in clinical research is a very paper heavy process and the shipping of documents boarders on extreme. I am glad that you mentioned the use of esignatures specifically within pharmaceutical FDA regulatory requirements. In my opinion, the use of esignatures is extremely underutilized in both: the regulatory and contracting process involved in study start-up.

    The financial implications of the industry adopting esignatures as the norm is staggering. As an example look at a phase III trial involving 300 US sites. The minimum number of instances in activating a research site when esignatures could be employed is 3: assuming the regulatory pack can be settled with one exchange between sponsor and site, 1 contract + 1 contract amendment. For each instance there will be 3 shipments (sponsor to site for site signature, site to sponsor for full execution, and back to site for filing). The average cost for shipping (it is standard for pharma sponsors and CROs to use next day delivery or even priority) could be $15-$20. Is $27,000 – $54,000 justified when esignatures would all but nullify this cost? There are over 90,000 active trials listed on clinicaltrials.gov.

    Allowing for the fact that many of these studies such as phase I studies, may involve a low number of sites, and others, such as phase IV or registry studies may involve 100’s or 1,000’s of sites a reasonable average number of sites per study may be around 25 (a low average, I believe). Shipping of documents for the sole purpose of execution in pharmaceutical clinical research can cost between $160,000,000 and $300,000,000. And this does not account for studies conducted overseas.

    I fully understand the importance of security within this realm; however, as you pointed out, esignatures are safe and secure. I also realize how slow pharma is to adopt new technology, but it seems that at this point it is the responsibility of the industry to make this simple adoption to bring greater efficiency to the process of clinical research, drastically reducing the cost, without any potential adverse effects on study quality or patient safety.

    Thanks again,

    Dan Manak
    Sr Director of BD at goBalto

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